What investors should know about Asean's ecommerce war

The ecommerce giants of Southeast Asia, which take leaves out of China’s book, have largely been mired in stiff competition and weak earnings. But we think their woes are just the growing pains of a young market preparing for long-term growth.

Shopee, the biggest online retail platform in Southeast Asia, looks Chinese in every detail: lots of red, mini games for earning points, and big promotions on the November 11 ‘Singles’ Day’, as well as the other Chinese shopping festivals that have been invented in recent years. Similarly, Lazada, the region’s second-biggest ecommerce website, bears all the marks of Tmall, China’s most popular online marketplace, as Chinese tech giant Alibaba controls them both.

Despite their Chinese similarities, these Asean firms have been struggling to replicate the profit margins of China’s ecommerce giants, which have become largely profitable. Shopee has strategically switched between a top and bottom-line focus, swinging back to losses after a brief period of profitability, although losses narrowed in the fourth quarter of 2023.

Lazada, too, has been making losses, despite receiving sizeable capital injections from Alibaba in the last few years. Also bleeding cash is Jakarta-based Tokopedia, the region’s fourth-biggest player.

Growing pains

The arduous quest for profits in Asean’s ecommerce sector has sapped investor confidence, but we think the current challenges are just growing pains for a young market, where demographic dividends, infrastructure upgrades, and further digitisation will drive long-term growth. In fact, we are seeing early signs of competition easing among the top players, which are echoing Shopee’s narrowed quarterly losses. 

Through research and meetings with management, we’ve gathered evidence of ecommerce firms cutting back on their subsidies for merchants and vouchers for consumers. One executive said his company had become more reluctant to burn through cash in this market. Lazada reportedly cut jobs across the region in January to control costs.

A close look at some of the differences between Asean and China throws light on exactly why monetisation requires more time and patience across this vast and fragmented region.

Economies of scale

First, Southeast Asia lacks the economies of scale which have been key to China’s success in developing the world’s biggest online shopping market. Many of China’s 1.4 billion inhabitants live in densely populated areas. There are 21 Chinese cities1 where the population exceeds five million, compared to just six such cities in Asean.

Nevertheless, Asean has a young and growing population, which the World Bank estimates will rise from about 690m this year to some 740m by 2033. An enviable median age of 30 for the region compares with 39 in China, 49 in Japan, 38 in the US, and 42 in Europe. Cities are growing across Southeast Asia, where the overall urbanisation rate is forecast to rise from 52 to 56 per cent by 2030. 

Second, China arguably has the world’s fastest express delivery services, thanks to an unrivalled high-speed rail system, with a total length of about 45,000km, and a vast network of modern warehouses. In Southeast Asia, it was not until last year that Indonesia launched the region’s first high-speed rail line at 142km (with the help of a Chinese state-owned builder). Geographically, much of the region’s archipelagic features also limit the efficiency of land transport.

But Southeast Asian countries have realised the importance of efficient intra-regional transportation and are working together to improve infrastructure, partly through a scheme called ‘Master Plan on Asean Connectivity 2025’. Meanwhile, some ecommerce firms are stepping up investment to expand their own logistics networks. For example, Shopee has opened five new sorting centres and more than 300 new delivery hubs across its Asian markets in the fourth quarter of 2023.


China has a high digital payment penetration2 which is key to the country’s ecommerce boom, with about 85 per cent of Chinese adults using cashless transactions to some extent. No country in Southeast Asia except Singapore can match that level of digitisation yet. In Indonesia and the Philippines, which together account for more than half of Asean’s population, the penetration of digital payments is well below 50 per cent and most people remain underbanked or even unbanked3.

However, a rapid wave of digitisation has swept Southeast Asia in the wake of the Covid-19 pandemic, prompting some researchers to predict that the region’s e-wallet users will quadruple from about 100m in 2020 to over 400m in 2025. Competing for new users, several ecommerce operators have developed their own e-wallet brands. Shopee, for example, has attracted some 30m people to use its ShopeePay since launching the service in 2018.

China’s regulatory crackdown on internet giants has unwittingly helped to reduce competition among them. A lack of new investments has contributed to the profit margins of Chinese ecommerce firms. In Asean, however, competition remains fierce in the absence of such government intervention.

Tectonic shifts

None of the current challenges looks big enough to break the investment case for Asean’s ecommerce sector though. Its long-term growth potential also remains supported by the region’s macroeconomic trends. Exactly how the sector will end up looking and who the big winners will be is still to play for. Tectonic shifts are still underway - with one particularly seismic move coming at the end of 2023.

Tiktok, the world’s biggest short-video platform, announced in December its plan to invest US$1.5bn in a joint venture with Goto, which owns Tokopedia. It could be how Tiktok makes a comeback after being banned by the Indonesian government from running its own ecommerce platform in the country. The move is a vote of confidence in Asean’s ecommerce market and will probably change its competitive landscape given Tiktok’s massive popularity and its expertise in merging entertainment, social interaction, and shopping. The winning combination has seen Tiktok achieve much higher user-to-buyer conversion rates than conventional ecommerce firms.

The bar has been raised and today’s top names may well change as the market matures. The China copycats still need a good fight to sort out their ranks.

1. Cities proper only, National Bureau of Statistics
2. World Bank’s Global Findex Database 2021 report
3. eConomy SEA 2022 report by Google, Temasek, Bain & Co.